Tag Archives: investing

In today’s market, there are all sorts of people who seek to buy a home for investment purposes. According to Digital Finance Analytics’ 2015 Household Survey, just under one million households own investment property without building any kind of portfolio, while 178,000 households have a collection of investment properties.

These range from people in their 40s and 50s pondering their retirement strategy, to young professionals trying to get a foot in the market early.

With this in mind, some interesting research has recently turned up on the behaviour of the millennials, which may highlight the need for them to invest into real estate.

Millennial Falcon

People generally branded as millennials are those born sometime between 1980 and 2000, and seem to hold different values and objectives to the generations that came before.

Deloitte’s millennial Survey of 2016 revealed that this group of people tend to be far less attached to traditional career-based goals and more on personal development. Just under half of the millennials surveyed expect to change workplaces within two years. Simultaneously, roughly one in five actually intend to stay with their present employer for more than five years.

So, what does this all mean? As David Hill, chief operating officer from Deloitte Australia, suggested, millennials are more independent and more assertive of what they seek, wanting their work to have purpose beyond turning a profit. They are also unafraid to simply seek employment elsewhere until they find a fulfilling line of work.

Plan B

If you’re a millennial yourself and share this sense of free-spiritedness, you may just benefit from buying real estate for investment purposes. It’s likely that this sense of personal independence may not disappear as the decades roll by, and it’s important to have financial backing in the instance that you choose to drop jobs to pursue another passion.

Investment real estate is a practical solution, providing you with a secondary stream of income when your cash flow is erratic or you simply need extra cash to pay the bills.

Furthermore, having a valuable asset that only really goes up in value over time is a great parachute to pull in time of financial need. CoreLogic RP Data’s most recent Market and Housing Update shows that the median price of Australian property was $600,000 by January – a result of a market that, aside from a few slight dips, have only really trended upwards since 1998. This means that investing early could earn you that sweet pay out later down the line if you want to move in a completely different life direction.

As most real estate experts will tell you, building your property portfolio is a smart way to invest your money because land, like gold, retains its value. This means that you are safely investing your funds, as the likelihood of a return – or even profit – on your investment is high given that property and land are always in demand.

For those of you who are looking to expand your property portfolio further by buying real estate in Australia, it might be time to consider purchasing a holiday home. There are both financial and health benefits to be enjoyed by doing so.

Financial perks of a holiday home

In many ways, investing in a holiday home is the gift that keeps on giving because even when you are not using it, you can rent out the property to other holidaymaking families. This is where location, location, location comes in - consult with an agent to find a holiday home that is near the beach, parks, gardens or tourist attractions of a city to ensure you’re getting as much rent money as possible on a weekly basis. Sea views are a great calling card for renters.

Simply take your house off the rental market when you and your family want a vacation, so you can all enjoy the nearby amenities, too!

Health benefits of a holiday home

Interestingly, a study sponsored by Nuffield Health found that taking annual leave, or having regular holidays, can dramatically improve our overall health and wellbeing. In addition to being positive by releasing endorphins and dopamine, the chemicals that make us happy, going on holiday can reduce our blood pressure by 6 per cent on average, according to the study’s findings. What’s more, our sleep quality can also improve by up to 17 per cent.

Choosing to build a brand new home rather than buy an existing property provides a number of benefits for potential investors.

Generally these types of properties will be built in a developing suburb close in proximity to schools, transport and local services. Surrounded by other new homes, a new house is likely to have street appeal that will attract potential tenants and as a result provide excellent weekly rental returns for the property owner.

One benefit that often goes unconsidered by potential investors when investing in property however is the depreciation benefits available.

According to the Chief Executive Officer of BMT Tax Depreciation, Bradley Beer, research suggests that 80% of investors don’t maximise the depreciation deductions available from their properties.

Considered a non-cash deduction, investors don’t need to spend any money to be able to claim depreciation from their property. It is a deduction available for any wear and tear which occurs to the building structure and the plant and equipment assets contained in the property over time.

Depreciation relating to the building structure is claimed as a capital works deduction. Examples of items which can be claimed as capital works deductions include the walls, windows, doors and the roof of the property. Capital works deductions can be claimed at a rate of 2.5 per cent per year over forty years for properties in which construction commenced after the 15th of September 1987.

Plant and equipment depreciation on the other hand relates to the assets which can be easily removed from the property such as carpets, blinds, ovens, dishwashers, garbage bins and even shower curtains. These items depreciate based on an individual effective life as provided in legislation from the Australian Taxation Office.

While the owner of any income producing property is eligible to claim depreciation, those considering building a brand new property for investment purposes will usually receive higher depreciation deductions. There are two main reasons for this:

The owner of a brand new property will be eligible to claim the full deduction for the entire cost of the building structure over forty years. Owners of properties which are not brand new can only claim the remaining years available.

New houses usually contain plant and equipment assets which are higher in value. This increases the depreciation deductions which will be available for the owner.

Let’s take a look at some of the depreciation deductions the owner of a freshly built brand new house can expect to claim over the first five years of ownership.

As the table shows, the owner of a newly built house can claim between $8,300 and $10,700 in depreciation deductions in the first full financial year alone. Over five years, this cumulates to between $32,500 and $42,800 in deductions the owner can claim as a tax deduction.

Based on a tax rate of 37 per cent, investors will receive an average annual cash return of between $2,405 and $3,167 from a newly built house depending on its size and the assets contained.

Those considering building a brand new house for the purposes of an investment are recommended to seek advice from a specialist Quantity Surveyor prior to purchase.

A Quantity Surveyor, such as BMT Tax Depreciation, can provide a detailed depreciation estimate outlining the deductions that will be available once the property is property is constructed and available for rent. This estimate can help investors to crunch the numbers to get a more accurate picture of their after tax scenario to help them with their investment decision.

Once a property has been built, in order to claim depreciation a Quantity Surveyor should complete a tax depreciation schedule outlining all of the deductions available for the owner. This schedule can then be used by the property owner’s Accountant to process their claim when they complete their annual income tax assessment.

For a detailed estimate of the depreciation deductions available for any property, contact BMT Tax Depreciation on 1300 728 726 to speak with one of their expert staff or visit click here to request a quote.

Australia is made for outdoor living, so it is little wonder that alfresco areas have become sought after additions in any property.

Owners see great value in adding permanent weatherproof structures to an investment property. Creating an indoor-outdoor environment which can be enjoyed all year round not only adds value to the existing property, but it can also help to attract potential tenants and potentially increase the annual rental yield.

What many investors don’t realise is that by adding an alfresco or an outdoor structure of any kind, they will also impact the depreciation deductions they can claim.

Any structures added to an investment property will entitle the owner to claim additional capital works deductions, also known as building write-off, at a rate of 2.5% per year.

If the owner installs any new plant and equipment items, including removable or mechanical assets, this will also entitle the owner to claim depreciation deductions for these items. The deductions an owner can claim for any new plant and equipment items will be based on the individual effective life of each item as set by the Australian Taxation Office.

Let’s take a look at a scenario in which an investor decided to add a seven metre by four metre outdoor alfresco to their existing four bedroom investment property. The structural work on the alfresco cost $15,010. The owner also chose to install plant and equipment assets totalling $9,217 in value, bringing the total cost of work done to the property to $24,227.

Below is a summary of the costs of the new additions and the first full year depreciation deductions the owner could claim.

As the table shows, the owner of this property could claim $375 in capital works in the first full financial year deductions for structural items such as the concrete slab, walls, tiles, roof and lattice screening. The owner of the property would also be entitled to claim capital works for the remaining life of the property (forty years) for new structural items.

Plant and equipment assets installed such as an outdoor ceiling fan, outdoor furniture, a freestanding BBQ, light shades and garden solar lights resulted in a $3,831 deduction in the first full financial year for the property owner. This brought the total depreciation deduction of new items installed to $4,206 for the owner. These deductions would be in addition to any remaining depreciation deductions the owner could claim from the pre-existing property.

It is important to note, that if the property owner was to remove any existing structures or assets during the process of adding the alfresco area, they may also be entitled to additional deductions. If any remaining depreciation deductions exist for items or assets being removed during a renovation or addition, the property owner may be entitled to claim a deduction for the full amount of the remaining depreciation for items scrapped within the financial year of their removal.

Property owners should always seek the advice of a specialist Quantity Surveyor when they plan to make any alterations to their rental property. If the owner has an existing depreciation schedule, the owner will need to have it updated, and if assets or structures are being removed, the Quantity Surveyor should perform a site inspection before and after work commences to ascertain the remaining depreciation of items being removed and value new structures and items added to update the depreciation schedule for the owner.

Generation Y, also known as millennials, are the group of people born between 1980 and the early 2000s. As is often the case with generational groups, millennials have their own set of values and ambitions that differentiate them from their predecessors.

These values frame their world view and influence a range of their financial decisions, running the gamut from travel to buying real estate, and especially their first home. So, how do millennials feel about investing in property and potentially beginning a portfolio by climbing the property ladder?

Enthusiastic

The Domain Consumer Insights Study found that, contrary to popular belief, the average age at which a millennial becomes an investment property owner is 25. This is in stark contrast to baby boomers, who purchased their first home nearly two decades after the age of 25.

“The idea of buying an investment property and renting at the same time is now much more commonly accepted, whereas probably 10, 20 years ago you bought your house to have your family in,” explained Jennifer Duke, editor of the Domain Review.

Moreover, the number of millennials who buy multiple properties is on par with older generations. According to the study, 17 per cent of millennials own two or more properties. All of this research implies that millennials are getting on the first rungs of the property ladder fairly early. However, it’s important to note that 26 per cent of millennials don’t fall under this category – they are still living in their parental home.

Apprehensive

While some millennials are embracing purchasing property, there are still a fair amount who have some anxiety regarding the subject. A report compiled by BDO and Co-Op surveyed 18-29 year olds and found that 87 per cent think their generation will never own a home outright.

Yet, 72 per cent of them feel that it’s important to buy a house as soon as they can. In light of this, a whopping 93 per cent of millennials have money saved, according to the report’s findings. This also shows that this group is savvy with savings, with over 65 per cent of them committed to long-term savings goals. This approach has resulted in an average savings per person of more than AU$8,000 or more.

These positive habits might be contributing to why so many of them are in fact ascending the property ladder at fairly young ages.

If you were looking for one controversy that has excited debate in the property market over the past few months, it’s stamp duty. The contentious tax has been brought into discussions about housing supply, affordability – even the recent debate on foreign investment has touched on the role of this tax. Fortunately for those buying a house or land for sale, it looks like the writing could be on the wall for this lucrative levy.

In an address in Melbourne, Treasurer Joe Hockey made his position clear on tax reform, pointing out that state and territory governments need to look elsewhere for sources of income. He highlighted that it is one the nation’s most inefficient and inequitable taxes, and set the challenge to develop another way of raising revenue.

Finding an alternative

If you were looking for a little perspective on why stamp duty has become the hot topic, new research from the Housing Industry Association (HIA) should provide it.

The HIA’s winter 2015 edition of the Stamp Duty Watch report shows that the typical stamp duty bill on buying a house now amounts to over $20,000 on real estate in Cairns, Melbourne and Sydney, and has increased significantly in both NSW and Victoria over the past year or so.

“Independent research conducted for HIA last year provided compelling evidence of the benefits to Australian living standards and economic growth from the replacement of stamp duty with more efficient, broad-based revenue raising measures,” said Shane Garrett, economist at the HIA.

GST in, stamp duty out

The Property Council of Australia has also pointed out that while governments need to focus on substituting the levy, it needs to go hand in hand with a range of tax changes. In particular, Chief Executive Ken Morrison pointed out the GST reforms should be on the table.

In fact, a new Property Council survey uncovered strong support for increasing GST and abolishing stamp duty, which could indicate the direction that governments will go in the future. Around three quarters of those surveyed believed it was inevitable that GST will rise over the next 10 years, and over two thirds of people supported stamp duty being removed.

“Some 65 per cent of respondents believed the GST to be fair or very fair, and only 35 per cent as unfair, with most citing its benefit as a tax that cannot be dodged,” Mr Morrison said.

With public support firmly behind the abolition of stamp duty, only time will tell whether governments take this on board. If they do, those buying real estate in Australia are sure to reap the rewards.

With the Council of the Ageing recently welcoming the federal government decision to keep financial advice regulations, now could be a great time to look into property investment for your retirement years. It is a great way to build equity, and offers a number of different ways in which you can benefit. Here are just a few ways that real estate investment for retirement could work for you!

Slow and steady wins the race

The story of the tortoise and the hare will not apply to every piece of real estate, but it can! Property is not a particularly volatile investment, so as long as you do your research and take on sound advice from the likes of agents and financial planners, there is every chance you will see solid capital gains over time.

If you plan well in advance and buy a home long before you retire, you may see some significant steady value gains that allow you to sell for a tidy profit as you retire.

Positive gearing to have you cheering

Another way that buying a rental property can benefit you into retirement is through making it positively geared. This means setting the rent that tenants pay above your mortgage repayments, so you earn profits. While you will pay tax on this, it keeps you afloat.

Keeping it in the negative

The alternative is negative gearing, where your rent does not cover your mortgage costs. This comes with its own tax write-off benefits, but means you have to have more capital put aside to cover the shortfall in the short term. The other side of this is you may be able to achieve some great windfalls in the long term!

Everyone will be in a different situation when it comes to investing for retirement – shop around and see what works for you

One question we are often asked by property investors is, “Why does a unit obtain more depreciation deductions than a house?” Although it’s not always obvious what differences in depreciation deductions there are between property types, it can be very useful knowledge for any property investor.

When looking at depreciation deductions, there are several factors that affect the final calculation. These include the purchase price of the property, the construction commencement date, the settlement date, the land value (where relevant), and the value of fittings and fixtures located within the property.

Due to the amount of infrastructure involved in the construction of a residential unit compared to a house or residential property, your overall claim can be greatly impacted based on type of property you choose to invest in.

Units also often contain more fixtures and fittings than a house, allowing the owner to claim against many items within the unit (e.g. lights, carpet and dishwashers). In addition to this, unit owners may be eligible to claim a share of common property, which is defined by the Australian Taxation Office (ATO) as ‘areas within a complex or development that are shared between owners’, such as driveways, pools, outdoor furniture, lifts, and fire stairways. Common property represents one of the most significant differences between houses and units for depreciation purposes, though deductions can only be claimed for these in select states.

The example below offers a comparison of depreciation deductions for a unit and house. After the first five years of ownership, the table shows the unit having accumulated $17,500 more in depreciation deductions. This is despite both properties having the same purchase price, construction date and settlement date.

Note: When purchasing a strata unit there are other costs, such as strata fees, to consider as an ongoing cost of ownership.

Quantity Surveyors are one of the only professions recognised by the ATO as qualified to estimate construction costs for depreciation purposes (TR97/25). As a building gets older, natural wear and tear depreciates the value of the property and its items. The ATO then allows property owners to claim this depreciation as tax deductions. Any property owner who obtains income from their property is entitled to make a depreciation claim.

Despite most investors being aware that they can claim deductions based on the building structure and the plant and equipment items of their unit, many are unaware that they may be able to claim depreciation on common areas as well. To obtain the most accurate and financially rewarding return, it is worthwhile for investors to consult a professional Quantity Surveyor to maximise depreciation claims.

While Accountants and Real Estate Agents are able to estimate depreciation figures on occasion, without a professional Quantity Surveyor’s construction cost knowledge and capability to accurately determine depreciation deductions, it is difficult to obtain accurate depreciation deduction estimates for an investment property. Most importantly, the ATO will not recognise their figures in a tax return. Consulting a Quantity Surveyor guarantees the investor their maximum available deductions.

To provide these deductions, usually a Quantity Surveyor will conduct a site inspection to establish the precise number of plant and equipment items on the property as well as to take measurements, photos, and notes in order to enhance a depreciation schedule. A Quantity Surveyor can also determine the correct share of the common property a property investor is entitled to claim based on factors such as the unit’s size, position within the development, and even its view. They are able to do this even by looking at a development’s building plans.

Following a Quantity Surveyor’s consultation, if an investor is audited by the ATO, their depreciation claim will then be supported by solid documented evidence. Adding to the benefit of a property investment’s complete depreciation schedule, any fees of a Quantity Surveyor are 100% tax deductible, as far as they extend to the production of a depreciation schedule.

If considering an investment property, please do not hesitate to contact BMT Tax Depreciation on 1300 728 726. Our staff are always happy to answer any questions relating to property depreciation. You can also easily estimate the depreciation deductions you may receive by using the free BMT Tax Depreciation Calculator. This can be downloaded as an app to your smart phone for free at www.bmtqs.com.au/calc so that you can work out deduction estimates even while inspecting your potential investment property.

Many people choose to invest in property because it is a great tactic to build wealth and secure their futures financially. However, as it’s an investment, owners should look for ways to maximise the returns on their properties. First National property managers always do. If you’re looking for strategies to get the most out of your rental property, here are three tips to help you on your way.

Hire a professional

Have you ever had to bang on a tenant’s door to pick up missed rent? Has your phone gone off at midnight after a tenant’s hot water cylinder has burst for the third time this year? Managing your own rental property can be a difficult task, especially if you have a vast portfolio. Instead of trying to juggle multiple properties at once, enlist the help of a professional property manager to take a few off your hands. Property managers have the knowledge, time and skill to ensure your investments and tenants are taken care of.

Review your rent

It may have been years since you last reviewed the price you’re charging for your rental property. The important thing to remember is that the market can change quite often. Fluctuations in vacancy rates and median rents can all impact how much you can charge for your property, and you may end up charging too little. Review your rent on a regular basis to meet the market. Compare your home with other rentals similar to your property, or obtain a rent appraisal from an agent.

Regularly refresh your rental property

The key to ensuring your rental property remains tenanted is to keep it in good condition. By staying on top of maintenance issues and refreshing the interior, your investment can be kept looking great for longer. At the end of each tenancy, you might want to give the home a quick lick of paint, have the carpets cleaned and the garden reworked. You might even be able to charge a bit extra for rent, while also making your home look more appealing to tenants.

Becoming a landlord means you’re becoming responsible for your own investment property. If you’ve recently entered the investment market, here are some essential tips you might want to keep in mind to ensure your home is adequately managed.

Perform regular inspections

You shouldn’t leave it up to your tenants to report maintenance issues. Some may feel it’s their fault that something broke or went wrong and may not alert you. Other tenants may just be lazy and leave issues alone or to potentially worsen.

However, performing regular inspections at the property will give you the opportunity to check the status of the house and pick up any issues that need addressing.

Have a condition report

When tenants move into a property, it’s in your best interest to have a condition report for your property on hand. This will allow you to take notes of the condition of the property, list chattels and identify any damage that has occurred.

This should also be reviewed when a tenant has vacated so you can determine if they have caused any damage during their tenancy.

Keep an eye on finance

Unless you keep a keen eye on your finances, it can be quite easy to not pick up a missed rent payment from your tenants.

This can cause a headache when you have a mortgage payment due or need the cash for other expenses.

If your tenant should miss a rent payment, it’s best to contact them first to find out why it happened. Failure to pay after a set amount of time can result in you pursuing further action, such as through the Tenancy Tribunal.

It can take time, skill and other resources to manage a rental property. If you feel uncomfortable with managing your own rental, look towards seeking the services of an experienced and professional property manager. First National Real Estate would be delighted to help you and has property managers throughout Australia.

They have the resources and knowledge to make sure your rental property runs smoothly and your investment is well taken care of.